Fastenal Company (Nasdaq:FAST), a leader in the wholesale
distribution of industrial and construction supplies, today
announced its financial results for the quarter ended September 30,
2020. Except for share and per share information, or as otherwise
noted below, dollar amounts are stated in millions. Share and per
share information in this release, and in the financial statements
attached to this release, has been adjusted to reflect the
two-for-one stock split effective at the close of business on May
22, 2019. Throughout this document, percentage and dollar
calculations, which are based on non-rounded dollar values, may not
be able to be recalculated using the dollar values included in this
document due to the rounding of those dollar values.
PERFORMANCE SUMMARY
Nine-month Period
Three-month Period
2020
2019
Change
2020
2019
Change
Net sales
$
4,289.3
4,056.8
5.7
%
$
1,413.3
1,379.1
2.5
%
Business days
192
191
64
64
Daily sales
$
22.3
21.2
5.2
%
$
22.1
21.5
2.5
%
Gross profit
$
1,949.0
1,917.0
1.7
%
$
640.6
651.1
-1.6
%
% of sales
45.4
%
47.3
%
45.3
%
47.2
%
Operating income
$
877.4
818.3
7.2
%
$
290.1
281.9
2.9
%
% of sales
20.5
%
20.2
%
20.5
%
20.4
%
Earnings before income taxes
$
870.5
807.3
7.8
%
$
287.6
278.4
3.3
%
% of sales
20.3
%
19.9
%
20.4
%
20.2
%
Net earnings
$
663.0
612.2
8.3
%
$
221.5
213.5
3.7
%
Diluted net earnings per share
$
1.15
1.07
8.0
%
$
0.38
0.37
3.4
%
Quarterly Results of Operations
Net sales increased $34.2, or 2.5%, in the third quarter of 2020
when compared to the third quarter of 2019. This increase was
driven primarily by higher unit sales of safety products, where
volume moderated relative to the pandemic-driven level of "surge"
sales in the second quarter of 2020, but remained elevated relative
to the third quarter of 2019. Re-opening of the economy has been
accompanied by greater demand for personal protection equipment
('PPE'), hand sanitizer, and related products, which more than
offset continued softness in underlying business activity owing to
a generally weak industrial marketplace for products unrelated to
mitigating the effects of COVID-19. The impact of product pricing
on net sales was immaterial, as price levels were broadly
comparable to those of the third quarter of 2019.
The tone of the third quarter of 2020 can best be described as
one of normalization following the heavily pandemic-influenced
second quarter of 2020. Activity levels throughout the period
remained below those that existed prior to the onset of the
pandemic and the related mitigation efforts. Based on trends in
vending dispenses and hub picks during the period, however, we
believe there was gradual sequential improvement in general
business activity each month of the quarter. This was apparent not
only in our sales trend, but also in improving signings and
activity levels among our growth drivers. Our product trends are
instructive. For instance, daily sales of fastener products
declined 6.9% over the third quarter of 2019, and represented 30.5%
of our net sales in the third quarter of 2020; fasteners
represented 26.0% and 33.7% of net sales in the second quarter of
2020 and the third quarter of 2019, respectively. The daily sales
decline of fasteners reflects the continued softness of the
manufacturing and construction markets, but is improved on the
16.4% daily sales decline of fasteners experienced in the second
quarter of 2020 compared to the second quarter of 2019. Daily sales
of our safety products grew 34.4% over the third quarter of 2019,
and represented 23.8% of our net sales in the third quarter of
2020; safety products represented 34.0% and 18.2% of net sales in
the second quarter of 2020 and the third quarter of 2019,
respectively. The daily sales growth of safety products decelerated
from the 116.3% increase in the second quarter of 2020 as a result
of a reduction in "surge"-type purchasing. However, we continue to
see strong growth with state and local government and healthcare
customers in addition to experiencing elevated day-to-day
consumption of safety products from our manufacturing and
construction customers as they operate with enhanced safety
protocols for employees. Daily sales of our other products declined
2.3% over the third quarter of 2019, and represented 45.7% of our
net sales in the third quarter of 2020; other products represented
40.0% and 48.1% of net sales in the second quarter of 2020 and the
third quarter of 2019, respectively.
Our gross profit, as a percentage of net sales, declined 190
basis points to 45.3% in the third quarter of 2020 from 47.2% in
the third quarter of 2019. The most significant factor behind the
decline in our overall gross profit percentage in the period was
the impact of lower product margins specifically for a narrow
subset of COVID-specific safety products, such as masks and face
shields, where an improved supply of product has pressured product
margins. Product margins for non-COVID-related products in the
third quarter of 2020 were collectively stable relative to the
third quarter of 2019. A second factor negatively impacting gross
margin in the period was product and customer mix, with the
magnitude of this impact narrowing slightly versus the second
quarter of 2020. As business conditions began to normalize in the
third quarter of 2020, the shift in product mix towards
higher-margin fasteners was more pronounced than the shift in
customer mix towards lower-margin National Accounts and Onsite
customers, resulting in a narrowing in the mix impact on gross
margins in the third quarter of 2020. Finally, organizational
factors also contributed to lower gross margins. In particular, we
deleveraged certain fixed costs, such as manufacturing and our
captive fleet, as well as period costs. Rebates and import costs
were also a drag to gross margin in the period.
Our operating income, as a percentage of net sales, increased to
20.5% in the third quarter of 2020 from 20.4% in the third quarter
of 2019. The 190 basis point decline in gross profit percentage
experienced in the third quarter of 2020 was slightly more than
offset by operating and administrative expenses (including a gain
on sales of property and equipment), which as a percentage of sales
declined 200 basis points from 26.8% in the third quarter of 2019
to 24.8% in the third quarter of 2020. The primary reasons for this
improvement was the ability to leverage employee and general
corporate expenses in light of higher sales.
Employee-related expenses, which represent 65% to 70% of total
operating and administrative expenses, decreased 4.9% in the third
quarter of 2020 when compared to the third quarter of 2019. The
decrease in employee-related expenses was primarily a result of
lower base and incentive pay deriving from lower full-time
equivalent ('FTE') headcount which was driven by continued weakness
in our traditional business in the period. Occupancy-related
expenses, which represent 15% to 20% of total operating and
administrative expenses, increased 0.7%. The major components of
our occupancy expense - our distribution centers, branches, and
vending device costs - all had individually very small changes that
collectively produced the slight increase in occupancy expenses.
All other operating and administrative expenses, which represent
10% to 15% of total operating and administrative expenses,
decreased 13.6% in the third quarter of 2020. We experienced lower
costs for selling-related transportation due to lower fuel prices
and fleet maintenance costs, reduced travel-related expenses, and
generally tight cost control.
Our net interest expense was $2.5 in the third quarter of 2020
compared to $3.5 in the third quarter of 2019. We experienced both
a lower average debt level and lower rates through the period. In
the second quarter of 2020, we increased the debt held under our
Master Note Agreement to $405.0. This debt is at various maturities
and fixed rates in order to free up borrowing capacity on our
revolver. As a result, future debt levels and interest expense
should be consistent with what we experienced in the third quarter
of 2020 unless we draw down the revolver at some point in the
future.
We recorded income tax expense of $66.1 in the third quarter of
2020, or 23.0% of earnings before income taxes. Income tax expense
was $64.9 in the third quarter of 2019, or 23.3% of earnings before
income taxes. We believe our ongoing tax rate, absent any discrete
tax items, will be in the 24.5% to 25.0% range.
Our net earnings during the third quarter of 2020 were $221.5,
an increase of 3.7% when compared to the third quarter of 2019. Our
diluted net earnings per share were $0.38 during the third quarter
of 2020 compared to $0.37 during the third quarter of 2019, an
increase of 3.4%.
Growth Driver Performance
During the first nine months of 2020, we signed 12,961
industrial vending devices, including 4,680 devices during the
third quarter of 2020. On a business day basis, we signed 75 in the
first quarter of 2020, 54 in the second quarter of 2020, and 73 in
the third quarter of 2020. Our installed device count on September
30, 2020 was 94,395, an increase of 6.9% over September 30, 2019.
Daily sales through our vending devices declined at a low-to-mid
single-digit pace in the third quarter of 2020 over the third
quarter of 2019. Our higher installed base was more than offset by
significantly reduced device throughput owing to the decline in
economic activity in the period. Device counts do not include
slightly more than 15,000 vending devices deployed as part of our
lease locker program.
During the first nine months of 2020, we signed 187 new Onsite
locations (defined as dedicated sales and service provided from
within, or in close proximity to, the customer's facility). This
included 85 signings in the first quarter of 2020, 40 signings in
the second quarter of 2020, and 62 signings in the third quarter of
2020. We had 1,236 active sites on September 30, 2020, which
represented an increase of 14.9% from September 30, 2019. Daily
sales through our Onsite locations, excluding sales transferred
from branches to new Onsites, declined at a low single-digit rate
in the third quarter of 2020 over the third quarter of 2019. New
revenue from relatively new active locations was not sufficient to
offset the impact of weak demand on more mature sites.
In April 2020, we retracted our 2020 signing goals for vending
devices and Onsites based on a marketplace that had begun to weaken
sharply and a customer environment that had begun to divert its
energies to near-term challenges over strategic planning. In the
case of both vending devices and Onsites, signings bottomed in
April and have improved since, with signings higher for both
vending devices and Onsites in the third quarter of 2020 than we
achieved in the second quarter of 2020. Further, customers are
beginning to re-engage in discussions involving our growth drivers.
However, this improvement remains gradual and signings remain below
our pre-pandemic level of expectations. We view the favorable
long-term outlook for our growth drivers as unchanged relative to
pre-pandemic levels. However, the timing of such normalization
remains uncertain, and as a result we have not re-instituted
guidance for vending and Onsite signings for 2020.
Daily sales to our national account customers (defined as
customer accounts with a multi-site contract) grew 1.7% in the
third quarter of 2020 over the third quarter of 2019. Revenues
attributable to national account customers represented 53.8% of our
total revenues in the period.
Balance Sheet and Cash Flow
We produced operating cash flow of $780.8 in the first nine
months of 2020, an increase of 32.3% from the first nine months of
2019, representing 117.8% of the period's net earnings versus 96.4%
in the first nine months of 2019. The most significant contributor
to the increase in our operating cash flow as a percentage of net
earnings is reduced working capital needs, especially as it relates
to inventory. In contrast to last year, our supply chain for
fasteners has caught up with weak demand. Combined with lower
Onsite signings and sales and a general soft demand environment
that traditionally requires less inventory and receivables on the
part of our customers, our working capital needs in the first nine
months of 2020 have been lower than in the first nine months of
2019. Our investment in property and equipment, net of proceeds
from sales, was $114.9 in the first nine months of 2020 compared to
$179.3 in the first nine months of 2019. This decrease was
primarily a result of lower spending to develop or expand certain
of our distribution center assets and efforts to limit capital
spending in light of the weak business climate. Our expectations
for net capital spending for 2020 are unchanged in a range of
$155.0 to $180.0, down from $239.8 in 2019.
We returned $430.2 in dividends to our shareholders in the first
nine months of 2020, compared to $372.3 in dividends in the first
nine months of 2019. This included $143.4 in dividends to our
shareholders in the third quarter of 2020, compared to $126.2 in
dividends in the third quarter of 2019. We repurchased $52.0 of our
common stock in the first nine months of 2020, and did not purchase
any of our common stock in the first nine months of 2019. We did
not repurchase any of our common stock in the third quarters of
2020 or 2019.
Total debt on our balance sheet was $405.0 at the end of the
third quarter of 2020, or 12.3% of total capital (the sum of
stockholders' equity and total debt). This compares to $445.0, or
14.7% of total capital, at the end of the third quarter of
2019.
Accounts receivable were $834.5 at the end of the third quarter
of 2020, an increase of $17.3 or 2.1%, over the third quarter of
2019. This increase largely reflects our growth in sales. Inventory
was $1,342.6 at the end of the third quarter of 2020, a decrease of
$12.1 or 0.9%, over the third quarter of 2019. In the second
quarter of 2020, we increased our inventory of PPE products in
anticipation of greater need as the economy re-opened, and the
sell-through of this product has been slow. As a result, we
continue to have approximately $30.0 of this inventory on our
balance sheet. However, non-COVID-related inventory needs have been
generally reduced by the low levels of activity among our
traditional manufacturing and construction customer base and
lower-than-expected signings of vending devices and Onsites.
Accounts payable were $210.4 at the end of the third quarter of
2020, a decrease of $4.8, or 2.2% over the third quarter of 2019.
This largely reflects the effect of lower customer demand on our
purchasing activity.
Additional Information
The table below summarizes our total and FTE (based on 40 hours
per week) employee headcount, our investments in in-market
locations (defined as the sum of the total number of public branch
locations and the total number of active Onsite locations), and
industrial vending devices at the end of the periods presented and
the percentage change compared to the end of the prior periods.
Change
Change
Change
Since:
Since:
Since:
Q3
Q2
Q2
Q4
Q4
Q3
Q3
2020
2020
2020
2019
2019
2019
2019
In-market locations - absolute employee
headcount
12,708
12,982
-2.1
%
13,977
-9.1
%
14,128
-10.1
%
In-market locations - FTE employee
headcount
11,302
11,310
-0.1
%
12,236
-7.6
%
12,417
-9.0
%
Total absolute employee headcount
20,336
20,667
-1.6
%
21,948
-7.3
%
21,938
-7.3
%
Total FTE employee headcount
17,862
17,814
0.3
%
18,968
-5.8
%
19,060
-6.3
%
Number of public branch locations
2,033
2,060
-1.3
%
2,114
-3.8
%
2,146
-5.3
%
Number of active Onsite locations
1,236
1,212
2.0
%
1,114
11.0
%
1,076
14.9
%
Number of in-market locations
3,269
3,272
-0.1
%
3,228
1.3
%
3,222
1.5
%
Industrial vending devices (installed
device count) (1)
94,395
92,615
1.9
%
89,937
5.0
%
88,327
6.9
%
Ratio of industrial vending devices to
in-market locations
29:1
28:1
28:1
27:1
(1) This number primarily represents
devices which principally dispense product and produce product
revenues, and excludes slightly more than 15,000 devices that are
part of our locker lease program where the devices are principally
used for the check-in/check-out of equipment.
During the last twelve months, we reduced our absolute employee
headcount by 1,420 people in our in-market locations and 1,602
people in total. The reduction in our absolute employee headcount
in our in-market and distribution center locations reflects efforts
to control expenses in response to weaker demand. The decrease in
our total absolute employee count is mostly from personnel
reductions in our in-market locations, distribution centers, and
manufacturing operations, and was only partly offset by additions
in non-branch selling and support roles. The latter reflects the
addition of certain employees from our acquisition of the mostly
intangible assets of Apex Industrial Technologies LLC, our
historical vending technology partner, as well as roles to support
customer acquisition and implementation, particularly as it relates
to our growth drivers and to support general corporate
functions.
We opened three branches in the third quarter of 2020 and closed
30 branches, net of conversions. We activated 57 Onsite locations
in the third quarter of 2020 and closed 33, net of conversions. The
number of closings reflects both normal churn in our business,
whether due to redefining or exiting customer relationships, the
shutting or relocation of customer facilities, or a customer
decision, as well as our ongoing review of underperforming
locations. Our in-market network forms the foundation of our
business strategy, and we will continue to open or close locations
as is deemed necessary to sustain and improve our network, support
our growth drivers, and manage our operating expenses.
CONFERENCE CALL TO DISCUSS QUARTERLY RESULTS
As we previously disclosed, we will host a conference call today
to review the quarterly results, as well as current operations.
This conference call will be broadcast live over the Internet at
9:00 a.m., central time. To access the webcast, please go to the
Fastenal Company Investor Relations Website at https://investor.fastenal.com/events.cfm.
ADDITIONAL MONTHLY AND QUARTERLY INFORMATION
We publish on the 'Investor Relations' page of our website at
www.fastenal.com both our monthly
consolidated net sales information and the presentation for our
quarterly conference call (which includes information, supplemental
to that contained in our earnings announcement, regarding results
for the quarter). We expect to publish the consolidated net sales
information for each month, other than the third month of a
quarter, at 6:00 a.m., central time, on the fourth business day of
the following month. We expect to publish the consolidated net
sales information for the third month of each quarter and the
conference call presentation for each quarter at 6:00 a.m., central
time, on the date our earnings announcement for such quarter is
publicly released.
FORWARD LOOKING STATEMENTS
Certain statements contained in this document do not relate
strictly to historical or current facts. As such, they are
considered 'forward-looking statements' that provide current
expectations or forecasts of future events. These forward-looking
statements are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such statements
can be identified by the use of terminology such as anticipate,
believe, should, estimate, expect, intend, may, will, plan, goal,
project, hope, trend, target, opportunity, and similar words or
expressions, or by references to typical outcomes. Any statement
that is not a historical fact, including estimates, projections,
future trends, and the outcome of events that have not yet
occurred, is a forward-looking statement. Our forward-looking
statements generally relate to our expectations and beliefs
regarding the business environment in which we operate, our
projections of future performance, our perceived marketplace
opportunities, our strategies, goals, mission, and vision, and our
expectations about future capital expenditures, future tax rates,
future inventory levels, and future operating results and business
activity in light of the COVID-19 pandemic. You should understand
that forward-looking statements involve a variety of risks and
uncertainties, known and unknown, and may be affected by inaccurate
assumptions. Consequently, no forward-looking statement can be
guaranteed and actual results may vary materially. Factors that
could cause our actual results to differ from those discussed in
the forward-looking statements include, but are not limited to,
those detailed in our most recent annual and quarterly reports.
Each forward-looking statement speaks only as of the date on which
such statement is made, and we undertake no obligation to update
any such statement to reflect events or circumstances arising after
such date. FAST-E
FASTENAL COMPANY AND
SUBSIDIARIES
Condensed Consolidated Balance
Sheets
(Amounts in millions except share
information)
(Unaudited)
September 30,
December 31,
Assets
2020
2019
Current assets:
Cash and cash equivalents
$
331.8
174.9
Trade accounts receivable, net of
allowance for credit losses of $11.8 and $10.9, respectively
834.5
741.8
Inventories
1,342.6
1,366.4
Prepaid income taxes
14.6
16.7
Other current assets
123.2
157.4
Total current assets
2,646.7
2,457.2
Property and equipment, net
1,023.7
1,023.2
Operating lease right-of-use assets
244.4
243.2
Other assets
193.8
76.3
Total assets
$
4,108.6
3,799.9
Liabilities and Stockholders'
Equity
Current liabilities:
Current portion of debt
$
40.0
3.0
Accounts payable
210.4
192.8
Accrued expenses
258.2
251.5
Current portion of operating lease
liabilities
94.4
97.4
Total current liabilities
603.0
544.7
Long-term debt
365.0
342.0
Operating lease liabilities
152.1
148.2
Deferred income taxes
102.9
99.4
Stockholders' equity:
Preferred stock: $0.01 par value,
5,000,000 shares authorized, no shares issued or outstanding
—
—
Common stock: $0.01 par value, 800,000,000
shares authorized, 574,049,821 and 574,128,911 shares issued and
outstanding, respectively
2.9
2.9
Additional paid-in capital
57.8
67.2
Retained earnings
2,866.7
2,633.9
Accumulated other comprehensive loss
(41.8)
(38.4)
Total stockholders' equity
2,885.6
2,665.6
Total liabilities and stockholders'
equity
$
4,108.6
3,799.9
FASTENAL COMPANY AND
SUBSIDIARIES
Condensed Consolidated Statements
of Earnings
(Amounts in millions except
earnings per share)
(Unaudited)
(Unaudited)
Nine Months Ended
Three Months Ended
September 30,
September 30,
2020
2019
2020
2019
Net sales
$
4,289.3
4,056.8
$
1,413.3
1,379.1
Cost of sales
2,340.3
2,139.8
772.7
728.0
Gross profit
1,949.0
1,917.0
640.6
651.1
Operating and administrative expenses
1,072.7
1,099.5
351.5
369.2
Gain on sale of property and equipment
(1.1
)
(0.8
)
(1.0
)
—
Operating income
877.4
818.3
290.1
281.9
Interest income
0.3
0.3
0.1
0.1
Interest expense
(7.2
)
(11.3
)
(2.6
)
(3.6
)
Earnings before income taxes
870.5
807.3
287.6
278.4
Income tax expense
207.5
195.1
66.1
64.9
Net earnings
$
663.0
612.2
$
221.5
213.5
Basic net earnings per share
$
1.16
1.07
$
0.39
0.37
Diluted net earnings per share
$
1.15
1.07
$
0.38
0.37
Basic weighted average shares
outstanding
573.7
572.9
573.9
573.5
Diluted weighted average shares
outstanding
575.5
574.0
576.1
574.4
FASTENAL COMPANY AND
SUBSIDIARIES
Condensed Consolidated Statements
of Cash Flows
(Amounts in millions)
(Unaudited)
Nine Months Ended
September 30,
2020
2019
Cash flows from operating activities:
Net earnings
$
663.0
612.2
Adjustments to reconcile net earnings to
net cash provided by operating activities, net of acquisition:
Depreciation of property and equipment
114.0
107.8
Gain on sale of property and equipment
(1.1
)
(0.8
)
Bad debt expense
5.8
4.9
Deferred income taxes
3.5
2.2
Stock-based compensation
4.3
4.3
Amortization of intangible assets
6.4
3.0
Changes in operating assets and
liabilities, net of acquisition:
Trade accounts receivable
(98.8
)
(108.0
)
Inventories
22.8
(76.9
)
Other current assets
34.2
9.8
Accounts payable
17.6
21.6
Accrued expenses
6.7
0.5
Income taxes
2.1
8.6
Other
0.3
1.1
Net cash provided by operating
activities
780.8
590.3
Cash flows from investing activities:
Purchases of property and equipment
(123.5
)
(184.3
)
Proceeds from sale of property and
equipment
8.6
5.0
Cash paid for acquisition
(125.0
)
—
Other
1.1
0.2
Net cash used in investing activities
(238.8
)
(179.1
)
Cash flows from financing activities:
Proceeds from debt obligations
910.0
745.0
Payments against debt obligations
(850.0)
(800.0)
Proceeds from exercise of stock
options
38.3
43.0
Purchases of common stock
(52.0
)
—
Payments of dividends
(430.2
)
(372.3
)
Net cash used in financing activities
(383.9
)
(384.3
)
Effect of exchange rate changes on cash
and cash equivalents
(1.2
)
(2.9
)
Net increase in cash and cash
equivalents
156.9
24.0
Cash and cash equivalents at beginning of
period
174.9
167.2
Cash and cash equivalents at end of
period
$
331.8
191.2
Supplemental information:
Cash paid for interest
$
5.9
11.3
Net cash paid for income taxes
$
201.4
182.6
Leased assets obtained in exchange for new
operating lease liabilities
$
76.1
87.6
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201013005280/en/
Ellen Stolts Assistant Controller – Reporting and Reconciliation
507-313-7282
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